2013 Year in review and my plan for 2014

My portfolio was largely:

1. Long US stocks.  This did fine as Altisource (ASPS) was one of my largest positions.
2. Short US stocks.  Unsurprisingly, I lost money here.
3. Long volatility/options.
4. Long Canadian junior mining stocks.  I am slightly profitable here despite the bloodbath in the TSX Venture.

I lagged the S&P 500 index but still had a profitable year.

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Ring of Fire update: Cliffs is pulling out indefinitely

Cliffs has announced that it is pulling out of the Ring of Fire and has no plans to restart its activities (press release).  I think that Cliffs is making the right decision because its own investors presentation showed that its chromite project was uneconomic (with the spot prices back then).  This is very unfortunate for me because I own shares in Noront and KWG Resources.

KWG Resources update – they own the best route to the Ring of Fire

KWG and Cliffs have been embroiled in a legal battle over the surface rights for a transportation route to mineral deposits in the Ring of Fire.  On Sept. 10, the Ontario Mining and Lands Commissioner released its decision (you can download it from KWG’s website) and KWG won.  It wasn’t a close decision judging by the wording:

[…] the law is clear; the application must fail.

Cliffs could find an alternate route, though it could cost hundreds of millions more.  It makes more sense for them to buy the rights from KWG.  KWG is sitting on an asset that is worth tens of millions of dollars to Cliffs, if not more.

Mining Mania

I used to assume that large mining companies would not chase projects with negative returns.  This is a dangerous assumption that I need to rethink.  I’m starting to realize that most large miners regularly chase projects with poor return.  Or, they engage in business decisions that don’t make a lot of sense.  I shouldn’t rely on the due diligence of senior mining companies when trying to value the assets of a junior.

Here’s my analysis of various large mining companies and why they are crazy.

KWG/NOT update – Cliffs’ Black Thor project has bad economics

A year ago, Cliffs put out some information on the economics of its Black Thor project in its Investor’s Day presentation by Bill Boor (see Cliffs’ website).  I’ve only stumbled across it and read it now.  In the figures given out in the presentation, there are some extremely aggressive price assumptions used and the stated IRR is only 14-17%.  The projects’ economics are overstated and this project doesn’t look economic at all.  I wish I had realized this sooner.

Now I’m in an uncomfortable position with KWG Resources and Noront.  Both their fortunes are tied to Cliffs building a mine and smelter that it shouldn’t.

Nanocaps: why I don’t like them

Nanocaps are stocks with a market cap less than $50M.  (To be honest, I used to think that the correct term was microcap.)

There are two main reasons:

1. The overhead of being a publicly-listed company is going to be a huge drag on performance.
2. Often these stocks are intentionally created knowing #1.  The brokers know that shareholders will have a hard time making money but they don’t care.

Ring of Fire update (Noront, KWG Resources, Cliffs Natural Resources)